Fair Market Rents: An Overview
The U.S. Department of Housing and Urban Development (HUD) estimates Fair Market Rent as what a household can expect to pay for rent and utilities in a given area’s current rental market for non-luxury efficiency, one-, two-, three- and four-bedroom rental units.
Fair Market Rents (FMRs) are revised annually. They become important when dealing with HUD’s Section 8 housing assistance program, but are also handy for landlords and rental property managers in determining rent for their properties.
A landlord who is new to a certain market and needs to determine what rent will provide enough income to cover P&I, insurance, and other expenses could use FMRs to get an idea of what the rental market will bear.
FMRs are set at the 40th percentile of gross rents, which is the point at which 40% of rents are at below or equal to, and 60% of rents are greater than or equal to. So, FMRs are set among the lower half of average rents. It’s important to remember that HUD’s gross rent refers to rent PLUS utilities (electricity, gas, water, sewer, and trash—but not telephone service) paid by the tenant.
HUD publishes proposed FMRs each year in April or May, to cover the upcoming fiscal year that begins October 1. The public is then invited to comment on the proposed rents, and after a period of review, the final FMRs are published in September and effective October 1.
To use HUD’s Fair Market Rents data, you can choose your area by state and then county, or see a state-wide summary. Or, you can choose from dozens of metropolitan areas, from Abilene, TX to Yuma, AZ. Examples of FMRs range in Abilene from $486 for an efficiency to $1,062 for a four-bedroom unit, while Yuma’s range is $574 to $1,408.
HUD provides calculations and charts to show how its figures are derived; if you’re a math whiz, you might want to check their results for accuracy—but most of us will likely gloss right over this section!
Check out HUD's Fair Market Rents for more rental market data than you'll know what to do with!